https://www.americancityandcounty.com/wp-content/themes/acc_child/assets/images/logo/footer-logo.png
  • Home
  • Co-op Solutions
  • Hybrid Work
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcast
    • Latest videos
    • Product Guides
  • Resources & Events
    • Back
    • Resources
    • Webinars
    • White Papers
    • IWCE 2022
    • How to Contribute
    • Municipal Cost Index – Archive
    • Equipment Watch Page
    • American City & County Awards
  • About Us
    • Back
    • About Us
    • Contact Us
    • Advertise
    • Cookie Policy
    • Privacy Statement
    • Terms of Service
American City and County
  • NEWSLETTER
  • Home
  • Co-op Solutions
  • Hybrid Work
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcasts
    • Latest videos
    • Product Guides
  • Resources/Events
    • Back
    • Webinars
    • White Papers/eBooks
    • IWCE 2022
    • How to Contribute
    • American City & County Awards
    • Municipal Cost Index
    • Equipment Watch Page
  • About Us
    • Back
    • About Us
    • Contact Us
    • Advertise
    • Cookie Policy
    • Privacy Stament
    • Terms of Service
  • newsletter
  • Administration
  • Economy & Finance
  • Procurement
  • Public Safety
  • Public Works & Utilities
  • Smart Cities & Technology
  • Magazine
acc.com

Administration


Government pensions get a makeover

  • Written by lisaacs
  • 21st March 2012
Public sector retirement plans of the future are emerging today, bearing only slight resemblance to their predecessors

What is in this article?

  • Government pensions get a makeover
  • Recession was catalyst for change
  • Hybrid saves $275 million in first year
  • Unintended consequences of changes

Government pensions get a makeover

Faced with unfunded liabilities between $288 billion and $500 billion, California Gov. Jerry Brown has announced a government pension reform proposal that would marry elements of the traditional defined benefit plan and a defined contribution plan. “Current benefits, contributions and retirement ages don’t reflect the changing demographic realities we face and are not sustainable,” the Democrat said in a letter to state leaders. “Continuing these plans in the current form will put taxpayers on the hook for substantial costs now and in the future. Urgent and decisive action is imperative.”

Although no legislator has yet introduced the governor’s bill, and its prospects are unclear, the governor’s office remains hopeful. “The timing is right to move ahead on this issue,” says H.D. Palmer, a spokesman for Gov. Brown.

California is only one of the many states that have either moved to a so-called “hybrid” pension system or are considering plans that would begin to shift the burden for retirement savings from the employer onto employees sharing some benefit risk. While consideration of using this blend of pension plan systems is rising, actual implementation has been limited thus far.

“We see a lot of interest in this plan type,” says Kim Nicholl, public sector retirement plan leader for New York-based The Segal Co., a pension consultant. “The hybrid has both defined benefit and defined contribution components. There are all kinds of variations.”

In some states, the changes in public sector benefit plans the last several years have been dramatic:

  • In Rhode Island, most employees were enrolled in a defined contribution plan with a 1 percent match, while the defined benefit plan rules changed eligibility, increased contribution rates and suspended cost-of-living-adjustment (COLA) increases for future retirees until plan finances improve.
  • In Utah, new workers can now choose to participate entirely in a defined contribution plan, or they can participate in hybrid plan, which includes a defined contribution component plus a defined benefit element with fluctuating contributions based on the plan’s financing.
  • In Michigan, new school employees contribute to a defined contribution plan (which is optional), while the employer’s contribution includes a partial match to the defined contribution plan and a reduced rate on the defined benefit plan. It no longer includes a COLA. Many municipalities participating in the Municipal Employees’ Retirement System of Michigan have established hybrid plans as the primary retirement benefit for their employees.

Not surprisingly, those plans have drawn mixed reviews, based on which side of the bargaining table the person sits. More importantly, some fear that the public sector, which has relied heavily on the notion of a secure retirement to draw good employees to its workforce, will suffer in its recruitment and retention. “Rather than teaching math, good people will become accountants,” says Doug Pratt, director of public affairs for the Michigan Education Association. “We need good people in public education to prepare our nation’s workforce.”

1 | 2 | 3 | 4 |
Recession was catalyst for change
Tags: Administration Economy Article

3 comments

  1. Avatar mjvatter 28th March 2012 @ 6:07 pm
    Reply

    Ok, so we have effectively
    Ok, so we have effectively reduced the pension programs in 41 states. They are becoming more like the private sector. Of course, as we move to compensation similar to the private sector are we going to get their little goodies – such as profit sharing, bonuses, stock options? Oh wait, there is no profit motive in government, so no bonus or profit-sharing. How about that stock option, not there either.

    I believe that the law of unintended consequences will kick in, particularly at the senior management level. Why work 50 or 60 hours with more responsibility for less pay? The brain drain will be dramatic.

    • Avatar tdw 1st June 2012 @ 6:35 pm
      Reply

      Exactly.
      Exactly.

  2. Avatar John 9th April 2012 @ 9:15 pm
    Reply

    My concern in reading
    My concern in reading articles like this is that they describe define benefit plans as “Funds are invested by the fund (and its professional managers), and the responsibility for the benefit falls entirely to the employer. If investments do not meet expectations, employers must add funds from their general operations.” They don’t seem to mention that in years where the funds returns exceed expectations that the entire benefit goes to the employer too. That is the fundamental nature of these plans using a expected return from their investments. Meaning there will times when it exceeds and times it is below, but continued investment returnss will be averaged out over the longer term. No one seems to talk about all those years when the rate of return did exceed the expectation, and the cities/employeers pocket the extra return and stopped making their contributions, but now when we are below these expectations these DB plans are unsustainable.

Leave a comment Cancel reply

-or-

Log in with your American City and County account

Alternatively, post a comment by completing the form below:

Your email address will not be published. Required fields are marked *

Related Content

  • Prioritizing rapid restore leads to stronger ransomware attack recovery
  • Rethinking the ways cities can invest in vital neighborhoods
  • How to innovate and invest on a budget in state and local IT services
  • Treasury Department launches Coronavirus State and Local Fiscal Recovery Funds to deliver $350 billion in funding

White papers


Modernizing government services for today’s resident expectations

24th January 2023

Preparing Your Community Now for the Next Generation of Older Adults

18th October 2022

Helping Government Fleets Achieve Their Goals

30th September 2022
view all

Webinars


How To: Evaluate Digital Government Service Delivery Technologies

23rd January 2023

Using Technology to Enhance Communications

29th November 2022

Learn the benefits of transforming and automating your Contract Management process

4th November 2022
view all

PODCAST


Young Leaders Episode 4 – Cyril Jefferson – City Councilman, High Point, North Carolina

13th October 2020

Young Leaders Episode 3 – Shannon Hardin – City Council President, Columbus, Ohio

27th July 2020

Young Leaders Episode 2 – Christian Williams – Development Services Planner, Goodyear, Ariz.

1st July 2020
view all

GALLERIES


These 10 American cities are well prepared for a tech-based future

1st February 2023

Report: While remote work is causing offices to empty out, walkable cities are still in high demand

26th January 2023

10 American cities with a great downtown

24th January 2023
view all

Twitter


AmerCityCounty

Amid spike, federal transportation department launches initiative to curb traffic-related deaths dlvr.it/Shvs31

3rd February 2023
AmerCityCounty

Engaging businesses to strengthen your community dlvr.it/ShvZn0

3rd February 2023
AmerCityCounty

Report: Some public employees face financial hardship; comprehensive pay packages proved ‘a pathway toward economic… twitter.com/i/web/status/1…

2nd February 2023
AmerCityCounty

Strategic Budgeting for Modern Government dlvr.it/ShrHmD

2nd February 2023
AmerCityCounty

These 10 American cities are well prepared for a tech-based future dlvr.it/Shp7sH

1st February 2023
AmerCityCounty

How public health can build a “one health” infrastructure for the future dlvr.it/ShnlKm

1st February 2023
AmerCityCounty

Four Steps to Better Municipal Fleet Fuel Purchasing dlvr.it/ShnbWP

1st February 2023
AmerCityCounty

Report: With increase popularity of e-bikes and e-scooters, there’s a need for ‘safe and connected infrastructure’ dlvr.it/ShlKmJ

31st January 2023

Newsletters

Sign up for American City & County’s newsletters to receive regular news and information updates about local governments.

Resale Insights Dashboard

The Resale Insights Dashboard provides model-level data for the entire used equipment market to help you save time and money.

Municipal Cost Index

Updated monthly since 1978, our exclusive Municipal Cost Index shows the effects of inflation on the cost of providing municipal services

Media Kit and Advertising

Want to reach our digital audience? Learn more here.

DISCOVER MORE FROM INFORMA TECH

  • IWCE’s Urgent Communications
  • IWCE Expo

WORKING WITH US

  • About Us
  • Contact Us

FOLLOW American City and County ON SOCIAL

  • Privacy
  • CCPA: “Do Not Sell My Data”
  • Cookie Policy
  • Terms
Copyright © 2023 Informa PLC. Informa PLC is registered in England and Wales with company number 8860726 whose registered and Head office is 5 Howick Place, London, SW1P 1WG.